As a homeowner, there are many terms you will need to know. Here are the top ten:
1. Escrow
Escrow is where your mortgage payment will be deposited every month. This account is a safe place where the escrow company stores your money and disburses it to the correct parties (taxes & insurance).
2. PMI (Private Mortgage Insurance)
PMI is monthly insurance that a lender requires borrowers who put less than 20% down to pay monthly. This insurance helps keep the lender safe if you were to default on your mortgage. This allows lenders to deal with higher risk and means that borrowers without thousands in their savings account can buy a home.
3. Deed
The Deed is a legal document that shows the property’s new owner in a real estate transaction. This is different from the Title, which refers to your legal ownership of the home.
4. Don’t Close Any Cards Prematurely
PMI is monthly insurance that a lender requires borrowers who put less than 20% down to pay monthly. This insurance helps keep the lender safe if you were to default on your mortgage. This allows lenders to deal with higher risk and means that borrowers without thousands in their savings account can buy a home.
5. HOA (Homeowner’s Association)
The HOA is a private body that manages homes and lots within a subdivision. They exist to help with neighborhood disputes, expenses, amenities, and home value.
6. Forbearance
Forbearance is when your mortgage servicer allows you to stop making payments momentarily in times of hardship. While this can be the break you need, this doesn’t come for free. Many times, the servicer will require a large payment to bring you current after the forbearance period. This also will show up if you try to refinance and should not be taken lightly.
7. Refinance
A refinance is where you work with a lender to get a new loan on your current home. You may refinance for a variety of reasons such as to:
- Reduce your interest rate
- Change loan type
- Reduce the term
- Pull out cash from your equity
8. Pre-Payment Penalty
Depending on the type of loan you go with, you may have an early payment penalty. This is a stipulation in your mortgage that says you will pay a penalty fee to pay off the mortgage early. This ensures that the investor that services your loan can make the money they need from the loan.
9. Principal
Your Principal is the mortgage balance that is remaining on the home. The Principal makes up a large chunk of your monthly mortgage payment and will go down over the life of your loan.
10. Loan Servicing
Loan Servicing is the company that collects your monthly payment. Depending on if your lender is a direct seller servicer, correspondent lender, or broker, it will determine if your loan is serviced by a 3rd party. They will be your go-to when it comes to questions on your mortgage.
If you would like to understand more about any of these terms, click here and speak with one of our loan officers today.